Huaan new update from RM

Dear WK,

Good day.

Thank you tracking the coal n coke price in custeel. Our Sept08 coal price was RMB 1,737 & coke price was RMB 2,500.

As for Oct08 one, i am still waiting from my Chinese accountant for the official figure. Usually 15th of the month. Anyway, i did my own simple average on the weekly figure from custeel, coal Oct08 was RMB 1,644 & coke was RMB 2,000.

Ya, ytday, i had phone conversation with my Chinese accountant, he was telling me the average selling price of coke was RMB 1500-RMB1,600 for 1st week of November. We recognize that the drop of coke price is fast which is very much in line with the downtrend of steel price in China. FYI, billet steel prices on 25 June 2008 in Shanhai was RMB 5,300 and on 4 November 2008, the price has dropped to RMB 3,150 which indicates a drop of 40% in 4 months.

During the 1H08, in view of skyrocketing of steel price in China, many building / infrastructure contractors have stock pile their steel (bought more than their requirements, which is natural human reaction) and caused oversupply of steel situation after Beijing Olympic. The oversupply situation is expected to persist until the end of the year, although we believe it will be to a lesser extend with demand gradually creeping up. This is because the steel stock would have been run-down by then and that the users of steel will have to start to re-stock. Infrastructure projects in China will not vanish overnight as once started or launched, it will need to be completed within a timeframe, although the said timeframe may be stretched out a little longer in view of the prevailing economic condition. As such, these users should begin to re-stock, if not by the end of the year, 1Q of 2009. That is where demand for steel will slowly recover and thus that of coke.

Our demand (of coke) started to slow down since August 2008 (Apr, May, June & July, there is no apparent sign of slowing down in demand). We expect slowdown in the demand for 4Q08. The recent global economic slowdown, coupled with a domestic housing slump in China has naturally hit China’s domestic demand and export of steel. Mittal group has recently accounced to cut down steel production by 15%. 4 large steel in northern China have announcedto cut down steel production by 20% (approximately 100 million tons).Malaysia steel manufacturers (listed co) are currently running capacity of approximately 50% and according to steel analysts, some are runnning at 33% only. ( According to a forecast by Shanghai-based Orient Securities recently suggested that Baosteel could see a loss of approximately RMB 500 million in the 4Q08 They expect EPS for 2008 and 2009 to be RMB 0.68 and RMB 0.41 respectively.Source: Starbiz dated 31 October 2008).

Sino Hua-An's coke business is very dependent on China steel industry as we sell all of our products to China domestic market. According to the Mr Tai, MD of a Masteel, a Malaysian steel maker, the international steel industry would likely rebound positivrly in the 1Q09 or 1H09, in tandem with other commodity prices. Steel is a commodity and also a necessity in any developing countries like China, should there be any rebound, we strongly believe, steel industry would be the first few industries to improve significantly. Therefore, we are very much in line with the performance of China steel players there. Eg during the good year like 2006 & 2007, we also enjoyed good GP margin of 20%.

Sino Hua-An's management will do the best to run the business effectively and efficiently. Sino Hua-An has no external bank borrowing and is a net cash company since Oct 2007. (As at 30 Aug 2008,the net cash position was more than RMB 120 mil).

Bursa Malaysia invited 7 listed companies from Malaysia (in fact 8, including Bursa itself) to present to retail investors in Singapore. This is the 3rd year Bursa Malaysia is actively helping to promote potential Malaysia companies in overseas. Dato' Yusli (CEO of Bursa Malaysia) will attend as well. The companies that are attending are HELP, Kossan Rubber, Muhibbah, QL Resources, Sino Hua-An, Pelikan, LCL & Bursa.


Thank you for your concern & best regards.

Best regards,
Bernard Tan